894.52/45
The Ambassador in Japan ( Grew ) to the Secretary of State
[Received June 29.]
Sir: With reference to the Department’s instruction No. 1018, dated April 30, 1936, which contained an exhaustive and valuable summary of the perpetual lease question in Japan and particularly of the American position in regard to that question, I have the honor to report the following developments in the case.
There have been no formal negotiations, either between the British Embassy and the Japanese Government, or between the lease holders and the local authorities, since the Embassy’s despatch No. 1269, dated May 1, 1935,30 was written. According to a member of the staff of the British Embassy, the British Foreign Office approved of the plan of the British Embassy in Tokyo that some compromise plan be formulated which would be acceptable to both parties and which would dispose of the entire troublesome question. The British Embassy held several informal conversations on the subject last summer [Page 974] and autumn, but it was found that there was so great a spread between the demands of the leaseholders and the wishes of the Japanese Government (which would promise no compensation whatsoever for the relinquishment of the perpetual leases) that a compromise seemed almost hopeless. In December and January the British Embassy was endeavoring to find some new method of approach to the problem, but the February 26 incident31 and its subsequent disturbances intervened, and the British Embassy has not since undertaken the problem. At the present time, with the changes in the Japanese Government and the lack of experience in the question of those now in the Foreign Office, the British Embassy considers the time inappropriate to reopen the question. In the meantime, the leaseholders, at least in Yokohama, are paying the disputed taxes under protest but are not paying the land and house taxes, which are not in dispute and which have not been collected by the local authorities for years past.
The British Embassy is of the opinion that neither the Japanese municipalities nor the Japanese Government is in a position financially at the present time to adopt the most reasonable plan, namely, that of gradually buying up the perpetual leases and thus eventually disposing of the question. Also because of the lack of sufficient funds, neither the municipalities nor the Government are likely to agree to any plan involving the payment of money to the leaseholders as compensation for the changing of leaseholds to titles in fee simple. Therefore it seems unlikely that the Japanese Government will broach the subject again in the near future.
The British Ambassador, however, has been informed, in accordance with the Department’s instruction above referred to, that the American Government would be prepared to give consideration to any plan which the British Government has formulated looking toward amicable adjustment of the question of leaseholds, but that the American Government is not in a position to intervene at the present conjuncture in the issue lying between the Japanese Government and the leaseholders.
In the last paragraph of the Department’s instruction under reference, the Embassy is asked whether or not it concurs in the facts and opinions set forth in the instruction. The Embassy concurs in all the statements of fact as set forth in the instruction, excepting the fact that, as the negotiations in connection with the conclusion of the Treaty of 1911 were conducted in Washington, the Embassy has no means of verifying the Department’s views in regard to the present position of the American Government vis-à-vis the Japanese Government in connection with the perpetual lease question. The archives of the Embassy contain very few references to the negotiation of this treaty. [Page 975] The Embassy also concurs heartily with the Department in its opinion of the equity of the situation and of the rights and duties of the leaseholders. The Embassy, however, does not agree entirely with the Department’s view, expressed on page 13 of the instruction under reference, that
“It is believed that an agreement to this effect might reasonably be made with the appropriate Japanese authorities by having the existing lease agreements cancelled and fee simple titles substituted in their stead, on the express condition that the holders of these titles will in the future on the one hand be exempt from the payment of any tax which might be regarded as a direct or indirect charge on the property formerly held under lease and on the other hand be subject to all other municipal charges and taxes on a basis of equality with native or other foreign residents of the municipalities of Japan.”
The objection to this solution of the problem would be that it would not greatly alter the present position of the municipalities vis-à-vis the leaseholders. At the present time the leaseholders are not paying the land and house taxes and other charges levied directly in respect of the leasehold properties, but are paying the municipal surtaxes upon the income and business profits taxes and other municipal taxes under protest and under threat of distraint in case of nonpayment. The municipal authorities, however, wish the perpetual leaseholders to be placed in exactly the same position as all other property holders in Japanese cities and to be subject to imposition of the same taxes and levies. The plan outlined by the Department, since it would perpetually exempt the former holders of leases from certain taxes, would not meet the wishes of the municipalities and would not remove the objection of the authorities and the citizens of the municipalities to the presence in their midst of certain privileged property owners.
From this viewpoint it would appear that the better road out of the maze is that advocated by the British Embassy, namely, that the Japanese Government or municipalities pay the leaseholders a lump sum as compensation for the relinquishment in perpetuity of all claims to exemption from taxation of any kind. The objections to this plan are, however, that the Japanese do not appear willing to pay compensation of any sort to the leaseholders, and that it is doubtful if they are financially able to pay such compensation at the present time.
On page 3 of the Department’s instruction under reference, the Department requests that the Embassy transmit to the Department a copy of the form received by Mr. O’Brien (then American Ambassador to Japan) from the Minister for Foreign Affairs on February 19, 1911. It is not clear from the records on file in the Embassy which form is referred to, but the Embassy encloses copies of three forms [Page 976] found in the files of the Embassy.32 The first would appear to be the form desired by the Department, as it has a notation in ink, “Handed to the Ambassador at Embassy by Mr. Ishii, Feb. 19, 1911”. On the other hand, the form appears to be the draft of a proposed second paragraph of Article 16 of the Treaty, preserving the status quo for the time being of the perpetual leases, and therefore seems inconsistent with the wishes of the Minister for Foreign Affairs as stated in Mr. O’Brien’s telegram. Moreover, the form bears the pencilled notation “Department draft”. The other two forms, also having connection with perpetual leases, are both labeled “Protocol”, one having the pencilled notation “Japan form” and the other the pencilled notation “Department form”, while the final paragraph of the latter has a pencilled heading “Japan’s last suggestion”. No explanation of these forms exists in the files.
Respectfully yours,