894.6363/135: Telegram

The Ambassador in Japan (Grew) to the Secretary of State

257. My 244, November 6, 7 p.m.

An official of the Department of Commerce and Industry on November 20 again requested Goold to file the Standard-Vacuum Oil Company’s complete import plan for 1935 immediately and added that failure to do so would result in penalization of the company. The British oil company was similarly notified.
At an official conference held later on November 20 between the Vice Minister for Commerce and Industry and Kurusu on the one side, and the representatives of the American and British oil companies on the other, Kurusu stated that the Japanese Government was not to be influenced by representations of the character already made by the American, British and Netherlands Governments into altering its petroleum law or abolishing the stock holding requirements. The discussions brought out the following facts:
It might be possible for the foreign oil companies to obtain an official guarantee of their present volume of trade in all products for a period of, say, 10 years, subject to various conditions.
The Japanese Government will give preference to domestic refineries in trade quotas and will not discriminate against foreign-controlled refineries in Japan, provided that the output of such refineries is kept within the amount of the trade quotas.
The Japanese Government will give preference in granting refining licenses to present importers who may desire to convert their business to refining within the country.
Kurusu suggested that any governmental representations which may be made in the future on the stock-holding requirements should contain more concrete evidence showing that the economic burden and risk of stock holding are so great that rather than bear them the foreign oil companies will withdraw from Japan. In such case, all the Japanese governmental departments concerned would have to reconsider the question in the light of alternative sources of supply.
The Vice Minister suggested that, in order to overcome the present impasse regarding the stock-holding provisions, the Japanese Government will accept provisional import plans, conditional upon the foreign oil companies’ decision as to whether or not it will be economically possible for them to continue in business in Japan. The Government will then grant provisional sales quotas for next year.
No method of compensating the oil companies in connection with stock holding is under consideration except that of recovering the additional expense from selling prices.
At a later private discussion Kurusu intimated that a strong attitude on the part of the foreign companies, such as possible withdrawal from Japan, would assist him and the Vice Minister for Commerce and Industry in influencing the more intransigent governmental departments.
Notwithstanding the strong attitude indicated in paragraph 1, it is apparent that the authorities are now showing a more reasonable attitude. It is also obvious that they desire to transfer the discussions from diplomatic to private channels. It is believed possible that their purpose in requesting the data indicated in subparagraph (d) is to acquire evidence which can be used in applying for some modification of the law in the next session of the Diet.
The Standard-Vacuum Oil Company is asking its head office for instructions regarding the submission of provisional plans indicated in subparagraph (e) together with a transmitting letter along lines suggested by the Vice Minister reading in part as follows:

“This is being submitted subject to alteration and conditional upon a decision of our principals as to whether or to what extent they are able to continue business in Japan under the conditions imposed by the petroleum industry law.”

The foregoing plan permits the American oil company to keep within the law but at the possible risk of transferring the discussions from diplomatic to private channels. As the company does not wish to do anything which might prejudice any official action which may be contemplated, the Department’s opinion of the advisability of submitting the plans as above indicated is requested.
The British oil company is similarly requesting instructions.