File No. 893.773/7.

Vice Consul Hanson to the Secretary of State .

No. 25.]

Sir: I have the honor to report that this office has been informed by the South Manchuria Railway Company that the authorities in Tokyo have decided that the reduced rates on the Mukden-Antung section of the railway will be extended to specific through imports into Manchuria via Dalny and Newchwang from Japan only and that the same rates will not be applied to through imports from Shanghai. The reduction is to take place on and after July 1, 1914.

With reference to local rates on goods despatched from the three sea ports, Dalny, Newchwang and Antung, a reduction of 15 per cent is to be made.

The first decision is a serious one for importers of American piece goods, as most of this class of imports enters Manchuria through Newchwang from Shanghai. Therefore, piece goods from Japan proper (practically all of Japanese manufacture) entering Manchuria via any of the three South Manchurian ports will have a decided advantage in freight rates over their American rivals, which cannot be classed as through goods from Japan unless they are shipped via Japan.

While no one can attribute unfair play to the Japanese for fixing freight rates in Japan proper, Korea or even in the Leased Territory, to suit the best interests of their nationals, it appears that the application of reduced rates on through goods from Japan only is a discrimination in favor of Japanese interests. This resolves itself, then, into an effort to add another advantage to the already natural advantages the Japanese cotton goods manufacturer has in the matters of cheapness of labor in the manufacture of piece goods, of cheapness in bringing his wares to the Chinese market (due to proximity), of cheapness in disposing of the stock in Manchuria (due to the elimination of the “middle man” and the presence of Japanese dealers on the ground), and of superior financing facilities offered by the Japanese banking institutions to Japanese merchants. These are advantages due to nature and to Japanese initiative in matters of finance and trade, and credit is due the Japanese in that they have made use of them. But the new advantage is not a natural one nor is it one that could be called fair in a territory where legitimate competition, as viewed by western standards, is supposed to exist. All legitimate competition in Manchuria would benefit the Chinese consumer and, as the policy of the “open door in Manchuria,” if it means anything, surely means that trade in Manchuria should be subject to legitimate competition so that the Chinese consumer as well as the foreign merchant would benefit thereby.

So far as Dalny is concerned, trade in American cotton goods through this port is nil, and, consequently, at present the new reduced [Page 595] rates as applied at this port are only of interest as a matter of principle. Trade through Newchwang, however, is vitally affected and foreign objections to the new scheme of applying rates will undoubtedly be heard in that quarter.

I have [etc.]

G. C. Hanson.