File No. 893.773/10.

Ambassador Guthrie to the Secretary of State.

No. 98.]

Sir: I have the honor to refer to despatch No. 25, of June 17, 1914, addressed to the Department by Mr. George M. Hanson, Vice Consul in charge at Dalny, a copy of which has just been received by this Embassy, in which he states that from the 1st instant reduced rates will be enforced on the South Manchuria Railway, from Dalny and Newchwang to the interior marts of the three eastern provinces, these rates to be applicable to specified through imports from Japan, but not to similar articles imported from Shanghai.

The commodities entitled to the reduced tariff includes cotton goods, which constitute the chief article of competition between American and Japanese trade in Manchuria. Since the American goods are shipped almost entirely via Shanghai, they will not enjoy the preferential treatment accorded to their Japanese rivals. As Mr. Hanson points out in his despatch above referred to, Japanese piece goods already have several natural advantages over the American ones, the import of which has as a result suffered an extensive decrease since the close of the Russo-Japanese War. The additional benefit to be extended to the Japanese product in the form of lower freightage seems calculated further to handicap the sale of our goods in the Manchurian market.

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The contention that manufacturers in the United States can avail themselves of the lower schedule by making Japan their point of transshipment instead of Shanghai is out of question. While the products of Japan are handled in Manchuria by Japanese merchants, our goods are at present handled by Chinese agents, who transact most of their business through the head hongs in Shanghai, which we must under the circumstances make the centre of distribution for our commodities, until American firms become convinced of the desirability of having their own agents in Manchuria.

The action of the Japanese authorities in the present case would seem to be inconsistent with the principle of equal opportunity, and with their assurances of adherence to this principle.

Knowing that the British Government was interested in the question, I informally inquired of the Ambassador what action he had taken. He informed me that he had addressed a note to the Japanese Foreign Office, stating that while the railway order specifically applied the reduced rates only to direct imports from Japan, he presumed that British goods shipped from Shanghai would enjoy the same benefit.

If the benefit of the reduced schedule, is extended to British goods, American imports will of course also become entitled thereto.

I have [etc.]

Geo. W. Guthrie.