B-80351 September 30, 1948

B-80351 September 30, 1948

The Honorable The Secretary of State

My dear Mr. Secretary:

Reference is made to your letter of September 23, 1948, wherein you request my decision as to the applicability of section 202 of the foreign Aid Appropriation Act, 1949 (Public Law 793 62 Stat. 1259 80th Congress), to materials purchased with funds granted to China under section 404 (b) of the China did Act 1948 (Title IV of Public Law 472, 62 Stat. 157 80th Congress).

Section 202 of the Foreign Aid Appropriation Act, 1949 provides, in substance, that no funds made available thereunder shall be used for the purchase of any commodities at prices higher than the currently prevailing market prices for such commodities in the Unted States.

Assistance to China was authorized by Public Law 472, 80th Congress, sections 403 and 404 of which provide as follows:

"Sec. 403. Aid provided under this title shall be provided under the applicable provisions of the Economic Cooperation Act of 1948 which are consistent with the purpose of this title. It is not the purpose of this title that China, in order to receive aid hereunder, shall adhere to a joint program for European recovery.

"Sec. 404.(a) In order to carry out the purposes of this title, there is hereby authorized to be appropriated to the President for aid to China a sum not to exceed #338,000,000 to remain available for obligation for the period of one year following the date of enactment of this Act.

"(b) There is also hereby authorized to be appropriated to the President a sum not to exceed $25,000,000 for additional aid to China through grants, on such terms as the President may determine and without regard to the provisions of the Economic Cooperation Act lf 1948, to remain available for obligation for the period of one year following the date of enactment of this Act." (Emphasis supplied.)

It is apparent from the above-quoted provisions of the act that the sum of $ 125,000,000 authorized to be appropriated by section 404 (b) was intended to be in an entirely different category from sum to be appropriated under section 404 (a). Section 404 (a) contemplated economic assistance to China, while it is clearly indicated from the excerpt quoted in your letter from page 9 of the Report of the Senate Committee on Foreign Relations on the bill S. 2993 that grants made under section 404 (b) were expected to be used by the Chinese Government for the purchase of supplies. See, also, pages 17-18 of the Herter Report (House Report No. 1845, 80th Congress, 2d cession, dated May 1, 1948). The distinction between the two types of assistance to be furnished under sections 404 (a) and 404 (b) appears to have been recognized in the Foreign Aid Appropriation Act itself, which appropriated $400,000,000 for assistance to China, of which $125,000,000 was made available "exclusively as provided in subsection 404 (b)." See, in this connection, Senate Report N. 1626 on the Foreigh Air Appropriation Act which contains the following language (p. 13):

"* * * This would allow #335,000,000 is relief and reconstruction grants and credits to China which would be administered by the Economic Cooperation Administration. An additonal $125,000,000 would be made available to China upon the terms established by the President for purposes which the Government of China might make requests. Information given the committee, mostly in executive session, indicates that there is immediate need for military aid in China and that the requests of the Government for assistence out of the $125,000, 000 fund will be of a military nature. The committee recommends the appropriation of $125,000,000 with the intent that care shall be exercised to hold expenditures to military purpose."

As is stated in your letter, it would appear to be inconsistent with the general purposes for which grrants were authorized to be made to the Chinese Government under section 404 (b) to apply to such grants the restrictions of section 202 of the Foreign aid Appropriation Act, and the legislative history indicates that such was not the intent of the Congress.

It may further be noted that section 404 (b) authorizes the appropriation of $125,000,000 to the President for aid to China through grants, on such terms as the President may determine. Under date of July 28, 1948, the President issued an amended directive setting forth the terms and procedures under which operations under section 404 (b) are to be carried out. Said directive provides for (1) advance payment or reimbursement to the Chinese Government for commodities or services ordered or procured directly by it; (2) advance payment or reimbursement to agencies of the United States Government in those cases where the Chinese Government wishes to arrange for the procurement of supplies or services through such agencies pursuant to Section 403 and 113 (a) of Public Law 472; and (3) monthly reports as to the purposes for which funds provided under section 404 (b) have been expanded.

While the President has not so directed, the language of section 404 (b) undoubtedly is broad enough to permit to permit the transfer of funds appropriated thereunder directly to the Chinese Government without restriction of any kind. The rule is well settled that grant funds which are transferred to one of the States of the United States become the property of the transferee, and are not subject to statutory restrictions which may exist with respect to the expenditure of appropriated moneys but which are not made a condition of the grant. 14 Comp. Gen. 916; 16 id. 943; 17 id. 593; 25 id. 869. Such rule would appear to apply with equal if not greater force to the transfer of grant funds to another sovereign nation. As a corollary to that rule, it would seem to follow that the existence of authority to make an unconditional grant necessarily makes any restrictions other than those which may be contained in the instrument of transfer inapplicable to the funds granted. There is nothing in the terms of the President's directive of July 28, 1948, to indicate the the restrictions contained in section 202 of the Foreign Aid Appropriation Act, 1949, were intended to be applicable to purchases made by the Chinese Government.

Accordingly, you are advised that purchases may be made be the Chinese Government from funds appropriated for the purposes of section 404 (b) of the China Aid Act of 1948 without regard to the provisions of section 202 of the Foreign Aid Appropriation Act, 1949.

Respectfully,

Comptroller General of the United States