The American Ambassador in Japan (Grew) to the Japanese Minister for Foreign Affairs (Matsuoka)

No. 1636

Excellency: I have the honor to recall to Your Excellency the fact that my Government has frequently found it necessary in recent years to make representations to the Japanese Government in regard to interference with American trade in China by Japanese military authorities or by local organizations under their control. Not only have representations been made in connection with general trade and exchange measures enforced by Japanese-controlled authorities in north China, but also in connection with especially destructive interferences with American trade in individual commodities, notably hides and skins, furs, wool, radios, egg products, and embroideries. It is now necessary to bring to the attention of the Japanese Government widespread interference with American trade in petroleum products.

In accordance with the desire of Your Excellency’s Government that questions of interference with American rights and interests in China be taken up and settled, if possible, with local Japanese authorities, American diplomatic and consular officers in China during the past twenty-one months have made earnest and continuous efforts to protect American trade in China in petroleum products from the multiplicity of interferences which have been instituted by the Japanese military authorities in China or local organizations under their control by taking up these matters with their Japanese colleagues on the spot. Unfortunately, those efforts have for the most part been unsuccessful. From Kalgan to Canton, in coastal cities and in the interior, American trade in petroleum products, chiefly kerosene and candles, continues to be subjected, notwithstanding repeated representations to the local authorities by American diplomatic and consular officers, to arbitrary and unwarranted interferences. Certain restrictions at certain points in China have, in response to those representations, been removed, but new restrictions in still other areas have been imposed, resulting in a net extension of interference rather than a contraction. The pattern of interference is so complete and the combined effects of the interferences upon American trade in petroleum products is so damaging that, especially in view of the rapid expansion of the Japanese petroleum products trade in China, it would appear that a comprehensive effort is being made to undermine American trade in petroleum products in China and to establish Japanese trade there in a preferred position.

Upon twenty-one occasions since January 1939 the American Embassy in Peiping has made written representations to the Japanese [Page 873]Embassy there in regard to interferences with American trade in petroleum products over extensive areas in Inner Mongolia and north China. These representations were made for the most part after efforts on the part of American diplomatic and consular officers in north China to effect the removal of the interferences in question through discussion with their local Japanese colleagues had proved fruitless. There follows a list of dates on which representations were made by the American Embassy at Peiping to the Japanese Embassy there in regard to interferences with American trade in petroleum products, together with an indication of the cities or areas where unwarranted interferences were reported as taking place:

Date of Representations68 Cities or Areas Where Interferences Were Reported as Taking Place
1. January 5, 1939 Shihkiachwang, Hopei, and other places in Hopei along the Peking-Hankow Railway; Cities in Shansi along the Chengtai Railway.
2. March 7, 1939 Kaifeng, Honan.
3. March 13, 1939 Shihkiachwang, Chengting, Paoting, and Tinghsien in Hopei; Yutze and Taivuan in Shansi.
4. April 27, 1939 Shihkiachwang and other places in North China.
5. September 25, 1939 27 places in Honan, Hopei, Shansi and Inner Mongolia.
6. October 3, 1939 Tientsin—trade throughout north China affected.
7. October 7, 1939 Sinsiang, Honan.
8. October 27, 1939 Taiyuan, Shansi.
9. November 6, 1939 Taiyuan, Shansi.
10. November 18, 1939 Tientsin—trade throughout north China affected.
11. December 12, 1939 Hsingtaihsien, Chengting, Tinghsien, and Wangtu in Hopei Province; Yangchuan in Shansi Province; and Anyang and Tsinghwachen and Honan Province.
12. December 14, 1939 Tatung, Shansi.
13. January 18, 1940 Fengchen, Suiyuan; Kalgan, Chahar; and Paoting, Hopei.
14. January 30, 1940 Shacheng, Chahar.
15. February 3, 1940 Paoting, Hopei; Fushan, Shantung; and various towns along the Peiping-Hankow Railway in Hopei Province.
16. February 6, 1940 Shihkiachwang, Hopei.
17. March 9, 1940 Kalgan, Chahar.[Page 874]
18. April 2, 1940 Kalgan, Chahar, and Shacheng in Inner Mongolia; Yangkao and Yutze in Shansi; Hsuchow, Kiangsu; Paoting and Hantan in Hopei; and Kaifeng and Sinsiang in Honan.
19. April 29, 1940 Changte, Honan.
20. April 29, 1940 Shacheng, Chahar.
21. May 2, 1940 Tatung, Yutze, Pmgyao, Yangchuan, Taiyuan, Taiku, and Showyang in Shansi Province; Paoting, Tzechow, Shihkiachwang, Shunteh, Chengting, and Hatan in Hopei Province: Tsinghwachen, Chiaotso, and Kweiteh in Honan Province; and Hsuchow in Kiangsu Province.

The types of interference involved in the foregoing complaints are varied but some of the more common are as follows: (a) fixing of prices at which petroleum products may be sold, the price usually being below the price at which the American companies involved have felt that they could sell with the expectation of making a profit; (b) quantitative limitation upon or prohibition of the movement of petroleum products from railway centers to interior markets; (c) prohibition of shipments of petroleum products from Tientsin to the interior except with the permission of the Japanese military authorities or the Japanese Consul General in Tientsin; (d) the levying of a so-called “transit” tax and other illegal taxes upon the transportation) of petroleum products in north China and Inner Mongolia; (e) the establishment of monopolistic organizations in certain markets for the distribution of petroleum products at fixed prices; (f) prohibitions against the purchase of petroleum products by any one not possessing a “purchase” certificate issued by the local magistrate or by certain Japanese military authorities; (g) currency restrictions on the freedom of agents of American oil companies to remit to such companies funds derived from the sale of the companies’ products.

As indicated hereinabove, certain interferences at certain places have been removed in response to representations made by American Embassy and consular officers in China. For example, the general restrictions upon the movement of petroleum (and other) products from Tientsin to the interior except with permission of the local military authorities or the Japanese Consulate General in Tientsin were removed. Moreover, the American Embassy at Peiping has been informed that some of the restrictions at Fushan, Shantung; Fengchen, Suiyuan; Sinsiang, Honan; and Taiyuan, Shansi, have been [Page 875]removed. However, it appears that most of the interferences which have been reported remain in effect and that those which have been removed have been replaced by other interferences at other places.

Interferences with American trade in petroleum products have not been confined to north China. According to information recently reaching my Government from the American Consul at Swatow, the Japanese military authorities at that port have refused an American company permission to import kerosene from Canton unless the company (1) produces a permit issued by the Japanese military authorities in Canton sanctioning the export of kerosene, (2) appoints a Japanese agent in Swatow to distribute the kerosene imported, and (3) pays to the Swatow civil authorities a tax of approximately ten yen for each ten-gallon unit.

The American Consul at Amoy has recently reported to my Government that the China Affairs Board has imposed quantitative restrictions on shipments into the interior of kerosene which would practically wipe out the business of foreign oil companies. Although the Japanese Consul at Amoy has informed the American Consul there that the purpose of the restrictions is to prevent kerosene from falling into the hands of the Chinese armies, that explanation is at variance with statements made by a local Japanese military authority.

In various districts in the Canton area kerosene monopolies have been established with the assistance of the Special Service Section of the Japanese Army which effectively preclude sales by American oil companies in those districts. On February 9, 1940, the American Consul General in Canton made representations69 to his Japanese colleague there in regard to the inability of American oil companies to ship petroleum products to the Namhoi district, principally Fatshan city, by reason of the fact that the distributing of kerosene in Fatshan had been restricted to one company, thereby creating a situation in the nature of a monopoly. On March 4, 1940, the American Consul General in Canton addressed a further communication69 to his Japanese colleague informing him that with the assistance of the Japanese authorities similar monopolies had been created in the Punyu, Tungkun, and Tsengshing districts and that, according to his information, similar monopolies would be established in several other districts. The American Consul General protested against the establishment of these illegal monopolies and asked that they be removed. Similar representations regarding this matter were made in my note, no. 1498, to Your Excellency’s distinguished predecessor on March 20, 1940.

At Shanghai, the Japanese military and naval authorities have imposed restrictions on American shipments from Shanghai to points [Page 876]in the interior and to South China coast ports. Shipments have been allowed only under permits approved by the Japanese authorities, and within the past two months, only in the name of Japanese agents of the American companies. Permits issued recently also bear the stamp of the Japanese Oil Association, which indicates that American oil shipments require the approval of Japanese oil merchants. The result of these restrictions is that the business of American companies in the Shanghai area is limited to the City of Shanghai, whereas Japanese importers of petroleum products who have purchased their supplies in free markets abroad have made large shipments from Shanghai to Yangtze Valley points. Repeated representations in this matter made by American consular officers in Shanghai to the Japanese authorities there have not led to any amelioration of the situation, nor is there any prospect that the Japanese authorities intend to permit American companies to regain direct participation in the trade in the Yangtze area.

Coincident with the development of an extensive pattern of interference in China with the sale of American petroleum products Japanese petroleum interests have been enjoying in recent years, according to reports reaching the Government of the United States, an increasing share in the petroleum trade of China for non-military consumption, a share which was markedly accentuated in 1939, and a large expansion of the distribution facilities in China of Japanese petroleum interests is reported to be taking place. The Government of the United States cannot regard these developments as unrelated to the aforedescribed program of interference with American trade in petroleum products in China.

It seems hardly necessary to point out to Your Excellency’s Government the extent of American financial interest in the petroleum trade of China, the extent of investments of American petroleum companies in storage and distribution facilities in China, and the value of the good will and trade contacts, which have been built up laboriously in China over a long period of years by American petroleum companies. These assets are now in danger of permanent impairment by acts of Japanese military authorities in China or by agents or local authorities under their control.

The Government of the United States protests emphatically against the foregoing interferences with American rights and interests in China, records a full reservation of rights in the matter, and, recalling the repeated assurances of the Japanese Government that American rights and interests in China would be respected, requests that the interferences complained of be removed and that effective steps be taken to prevent the establishment of new interferences.

I avail myself [etc.]

Joseph C. Grew
  1. Representations not printed.
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  3. Not printed.