The Ambassador in Japan (Grew) to the Secretary of State
[Received May 6—6:40 a.m.]
94. Acting under instructions the British Ambassador called on the Minister for Foreign Affairs on May 2 and invited the Minister’s attention orally to the great damage that was being done to legitimate trade by the extensive smuggling operations of Japanese subjects in North China. He said that British traders and others as well were suffering and that there seemed little disposition to curb these activities. It was even reported that Japanese authorities were indifferent to these illicit operations because it was felt that the Chinese tariff was too high and extensive smuggling might result in a reduction in the tariff by the Chinese Government. Further the action of the East Hopei Government in arbitrarily reducing the import duties and then allowing the goods on which reduced tariff had been paid to enter into general commerce in China was resulting in complete demoralization of the Chinese import business. The British Government was concerned not only with the damage being done to British [Page 142] traders but were also fearful that the situation might so develop that the customs service would be completely demoralized and the Chinese Government would find itself unable to service the loans held by British subjects on the security of the Chinese customs revenue.
The Minister for Foreign Affairs replied on May 4 that Japanese merchants were also suffering from these operations of smugglers but that the Japanese Government had absolutely no political motive and was lending no encouragement to the action of the East Hopei Government in setting up an independent tariff. The Japanese Government, however, felt that little could be done at the moment to ameliorate the general situation because Chinese internal administration was not very effective and the Nanking Government no longer remitted funds to the North China Administration. He added that Japanese interests were also concerned with the service on the Chinese external loans.
The British Ambassador also under instructions asked me whether the American Government would be prepared to authorize me to make a similar approach to the Minister for Foreign Affairs. He said that he had spoken to the French Ambassador here and that the latter was in communication with his Government.
I can see no objection to acceding to this request because while we have no direct interest in the Chinese customs loans we are definitely interested in honest customs administration.
Repeated to Peiping.