693.002/700

Memorandum by the Ambassador in Japan (Grew)

I called on the Minister for Foreign Affairs this morning at 9:30 at the official residence and took up with him the following matters:8

. . . . . . . . . . . . . .

Chinese Maritime Customs

An oral approach was made to the Minister along the following lines:

(a)
In our conversation of November 28, 1937, the Minister for Foreign Affairs orally gave me specific assurances that no American interests in the Chinese Maritime Customs would be injured.
(b)
Before the present Japanese military action in China began, the obligations expressed in foreign currencies in which American interests are involved, secured on the revenue from the Chinese Maritime Customs including surtaxes were being serviced with regularity.
(c)
As a result of the Japanese military occupation of North China there has resulted an economic separation of that area from the rest of China and consequently commercial transactions in China and exports from that area do not contribute to the foreign exchange resources of the rest of China.
(d)
The American Government is informed that measures are being contemplated by the Japanese authorities which in effect will exempt the Japanese occupied area from its obligation of furnishing its share of the foreign exchange necessary to service the foreign obligations secured upon the customs revenues for the whole of China.
(e)
If these proposed measures are successfully carried out they will so reduce the areas remaining available for the supply of the foreign exchange necessary to service the foreign obligations secured upon the revenue from the Chinese Maritime Customs that the servicing of the obligations in which American interests are involved will be jeopardized. This would result in serious risk of default which would completely nullify the assurance given me by Mr. Hirota on November 28, 1937.
(f)
To summarize, the payment of foreign creditors, including American creditors, in foreign currencies is an integral part of the obligations resting on the revenue from the Chinese Maritime Customs; and a vital element in such obligations would in effect be left unfulfilled [Page 744]if the areas in North China should fail to assume responsibility for supplying a fair share of the foreign currencies required.
(g)
Having in mind the foregoing facts and considerations the American Government asks assurances from the Japanese Government that the latter will not approve or agree to any arrangement which will nullify the assurance given me by the Foreign Minister.

The Minister showed indications of resenting my representations and some signs of anger in the course of our discussion, remarking that he thought that the arrangement negotiated with the British had already settled the whole matter. He spoke of the existence of warfare (using the actual word war) and said that the ports in the occupied area are controlled by Japanese troops. Resulting from the negotiations with England, however, the Japanese authorities had taken steps to ensure the continued payment from North China of the foreign obligations secured on the Chinese Maritime Customs by interceding with the Provisional Government in North China. He furthermore said “Have you recognized the Provisional Government of North China?” to which I replied that so far as the question under discussion is concerned my Government holds the Japanese Government responsible. (I took his observation to indicate that in diplomatic controversies relating to North China the same tactics as have been pursued in questions relating to “Manchukuo” will probably be followed by the Minister). The Minister said that these customs revenues are sent to the Inspector General of Customs at Shanghai and that the payment of the foreign obligations is the responsibility of the Inspector General. So far as the Minister is aware, the currency of the Central Bank of China is used in remitting the payments from the occupied areas and therefore, for any conversion of that currency, recourse should be had to Hankow.

I said to the Minister that we had not taken part in the British negotiations but that our interest lies in the preservation of the integrity of the customs and that a definite American interest is involved in the disposition of its revenues. We believe that a vital element in the obligations of the customs would remain unfulfilled if the areas in North China should fail to assume responsibility for furnishing a fair share of the foreign currencies.

The Minister said that he did not think that would be the case. I merely replied that I would report to my Government his attitude and observations. In the course of my remarks I observed that if there should be a default in the payment of the foreign obligations secured by the customs, there would almost certainly occur adverse publicity in the American press which would inevitably cause an unfavorable public reaction in the United States. Our argument was extensive and somewhat involved and the Minister sometimes showed heat in his comments.

J[oseph] C. G[rew]
  1. Omission which follows is indicated in the original.